What is Global Adjustment?

Posted on May 23, 2018

Global adjustment is a portion of a user's electricity bill, often overlooked by the average Ontario citizen. It is a rate set and regulated by the government to account for payments to existing power generating stations, as well as to invest in the development of our provincial power industry. To start, Ontario charges a significantly higher rate for electricity than its neighbors and it is important to understand why. According to the Independent Electricity System Operator (IESO), the average Global Adjustment rate in 2017 accounted for over 86% of the total cost of power for standard consumers.

A primary factor contributing to this high rate is that nearly all power generating companies signed fixed, twenty-year contracts in the early 2000’s, due to a desperate demand for electricity in Ontario. The rapid investment in power generating facilities led to the significant surplus of generating capacities. As a result of these contracts, the companies are paid a guaranteed price for any electricity that they can produce regardless of usage, and then excess power is sold to neighboring provinces or states, or it is stored.

Essentially, the funds from the monthly Global Adjustment rate covers the cost of:

The difference between the Hourly Ontario Energy Price (HOEP) charged by local distribution companies (LDCs) and regulated rates for Ontario Power Generation’s (OPC’s) nuclear and hydroelectric generating stations

The generation of more power by building and financing new power plants

The more efficient distribution and transmission of power by maintaining and upgrading existing infrastructure

The conservation of power with payments made to LDCs to invest in green, renewable energy projects

How does Global Adjustment work?

The Global Adjustment varies month to month in an inverse response to fluctuations in the spot market price of electricity, which is set in cents per kilowatt hour (₵/kWh). To clarify, if the market price for electricity rises, the Global Adjustment will fall and vice versa. The Global Adjustment differs depending on what customer class you’re in.

If manufacturers and businesses have signed a retail contract for electricity or are simply paying market price, the Global Adjustment rate is the dominant figure at the foot of their electricity bill. However, small businesses and residential customers that are billed by time-of-use (TOU) rates have the Global Adjustment fee combined with the TOU rate as a single charge. This results in the high electricity bills faced by a large base of consumers, who may lack contextual knowledge or who might even be entirely unaware of Global Adjustment.

However, you can store low-cost energy and use it during peak Global Adjustment hours. A Battery Energy Storage System (BESS) would first collect and store off-peak energy. Then, during high-cost periods, the BESS provides stored energy to offer significant savings. Want to learn more? Contact Josh Rabe at josh.rabe@saturnpower.com for more information.